The Canadian “Roll-Up” Play That Goldman Sachs Bought Yesterday

PEOPLE CORP (PEO-TSXv) GETS BOUGHT BY GOLDMAN SACHS

HERE’S THE NEXT ONE– AT THE GROUND FLOOR

“Roll-up plays” have been one of the best bets in the stock market for decades.

Roll-up is finance industry lingo for a consolidation play; where a management team uses their stock to buy up all their smaller competitors. 

Yesterday, one of the most successful ones in Canada EVER–People Corp (PEO-TSXv) was bought by famed brokerage house Goldman Sachs this week for $1.13 billion, or $15.22 per share.  People spent the last decade rolling-up small group benefits companies.  That doesn’t sound sexy at all, does it?  But look at the 10 year chart:

 “Roll-ups” are an incredibly lucrative business model if you have the management team who can initiate and digest acquisitions efficiently.  You buy at 4-5x cash flow and get valued at 8-12x cash flow—or better. The Street LOVES these plays—once a team shows they know what they’re doing

This creates a double win for shareholders.  One is that larger companies get larger multiples.  So a $50 million company might trade at 6x cash flow (or EBITDA, though the two are not exactly the same), a $500 million company in the same sector might trade at 10x and a $5 billion company might trade at 15x.

Second is that—just think how accretive (how much it increases earnings per share) it is for a company to buy a small mom-and-pop operator at 4x cash flow when they are trading for 10-15x. Shareholders of the big company wins AND the management wins as the stock they take for compensation trades at a higher multiple.

When you find a management team who can integrate acquisition after acquisition—it’s a beautiful thing. 

Bloomberg recently wrote about the Top 10 stocks of the 2010s—and “roll-up” or consolidation plays were 4 of the Top 10:

#9, up 1180%–Enghouse—ENG-TSX; software

#8, up 1190%–Alimentation Touche Card ATD.B-TSX; convenience stores

#3, up 4000%–Constellation Software CSU-TSX; software

#2, up 4230%–Boyd Income Group BYD-TSX; auto-repair shops

(https://www.bnnbloomberg.ca/best-tsx-stocks-of-the-decade)

Note that People Corp, being on the TSX Venture index, was not included in Bloomberg’s story—or it would be #1 by a landslide (almost 10,000%)!!! 

The good ones are NEVER cheap.  Except when they start out. At the bottom.

Tomorrow I’m going to show you the next roll-up play that has just started out–and I think has the potential to become a large company.

Tomorrow, I’m going to introduce you to the CEO–an entrepreneur who has already made over 3 dozen M&A deals in private industry.

He has now started his first public company, and already completed a couple acquisitions in the pubco.  In fact, with COVID-19 hindering cash flow and access to capital amongst his competitors, he is trying to increase his M&A pace as he not only has great access to capital….

He has access to TWO of the greatest business consolidators of the last few years.

One is Toronto-based Sean Cleary, who was one of if not the key member of the original team at the same People Corp (PEO-TSXv), I wrote about above! Cleary is not management here at this new bottom-floor opportunity, but he is an outside director.  The timing for this new stock could not be better!

The second mentor to this CEO is one Hamed Shahbazi, who as Founder and CEO of Well Health Technologies (WELL-CSE) has acquired a large number of digital and clinical assets in the healthcare space–and is barely in the middle innings of his game:

The track record of these two men is incredible.  They clearly know how to execute a highly accretive and successful M&A strategy.  And now they are mentoring a new CEO in the public markets, by being on his board of directors.

And I mean, bottom-floor, “just begun”.  This stock trades for less than $1—much the same as People Corp 10 years ago and Well Health only 3 years ago.

This opportunity does not come along very often!  I think investors must seize the day on these opportunities—I know I am!  I am long.  I have interviewed this CEO a few times. I’ve spoken to Shahbazi.  This is one of my Top Picks of 2021.
 

DO NOT MISS MY EMAIL TOMORROW!!!!!

 
In my email tomorrow, you will learn:

1. The name of the CEO who is heading up this new roll-up strategy
2. His genius method of keeping shareholder dilution to a minimum as he buys up companies
3. Examples of how recent M&A have turned out
4. Why this CEOs highly fragmented industry is RIPE for rapid consolidation
5. Most importantly, the ticker symbol of ground floor stock (under $1/share!)

Be ready!!!